International Investors Purchase One-Third of Fannie Mae Benchmark Notes and Benchmark Bonds Issues; Company Pledges to Enhance Capital Base, Risk Management Disclosures.

Business Editors

TOKYO--(BUSINESS WIRE)--Nov. 9, 2000

Franklin D. Raines, chairman and chief executive officer of Fannie Mae, the United States' largest source of financing for home mortgages, said today that international investors, including Asian institutions, have purchased one-third of the Benchmark Notes(R) and Benchmark Bonds(SM) the company has issued to date.

"Less than three years after the launch of Fannie Mae's Benchmark Securities(SM), international investors, particularly in Asia, have recognized their value as the preeminent source of liquidity across the yield curve," said Raines. "The liquidity of these securities has been proven in both stable and highly volatile markets. Throughout this time, Fannie Mae has maintained its consistent and regularly scheduled offerings and has continued to meet the varying needs of investors."

Speaking to reporters in conjunction with Fannie Mae's 16th annual meeting with its Asian debt and equity investors, Raines said that since 1998 the company has issued a total of $179.7 billion in non-callable Benchmark Notes and Benchmark Bonds. Raines said that international investors have been central to the success of these issues. Since the inception of the Benchmark program, international investors have purchased 33 percent of all Benchmark Notes and Benchmark Bonds issued, with approximately 14 percent going to Asian investors.

Raines also said that international investors stand to benefit from the voluntary pledge the company made last month to augment its capital base and expand public disclosure of its financial information.

Under the new voluntary measures, Fannie Mae will issue on at least a semi-annual basis sufficient publicly-traded, externally-rated subordinated debt to bring the sum of its core capital and outstanding subordinated debt to a minimum of 4 percent of on-balance sheet assets by the end of a three year phase-in period. In addition, the company committed to maintain three months worth of liquidity, to reduce the possibility that its operations could be disrupted during a significant financial crisis.

Fannie Mae also will publicly disclose the results of interest rate risk sensitivity analyses on a monthly basis, and the results of credit risk sensitivity analyses on a quarterly basis. And until its regulator, the Office of Federal Housing Enterprise Oversight, completes its permanent risk-based capital regulation, Fannie Mae will implement and disclose the results of an interim risk-based capital stress test on a quarterly basis.

"Instilling greater market discipline and supplementing equity capital are the two fundamental reasons that Fannie Mae voluntarily chose to begin issuing subordinated debt," said Raines.

Fannie Mae's announcement of its voluntary disclosure and capital enhancement package was made in conjunction with members of the U.S. House of Representatives' Subcommittee that oversees the company, and was greeted with widespread support by policymakers.

Timothy Howard, Fannie Mae's executive vice president and chief financial officer, said "Fannie Mae's business is the management of interest rate and credit risk on mortgages, and our record of success in these areas is unparalleled. The voluntary capital enhancement and disclosure measures we announced last month highlight Fannie Mae's exceptional financial strength, and should serve to solidify our standing with international investors as one of the most well-managed financial institutions in the world."

Howard noted that international investors, including Asian institutions, already have taken advantage of Fannie Mae Benchmark Securities in a variety of market transactions. "The exceptional liquidity and price transparency of Benchmark Bills(SM), Benchmark Notes, and Benchmark Bonds encourage their use by investors as trading, hedging, duration management and financing vehicles," said Howard. "Futures and options on Fannie Mae Benchmark Securities are traded on the Chicago Board of Trade, and we have seen the development of a strong term repo financing market for the securities."

Howard said that the company also has increased the efficiency of the funding of its mortgage portfolio through innovative e-business initiatives. The company first launched an Internet-based Dutch auction for its three- and six-month discount Notes known as Benchmark Bills in November of 1999. Last month, the company added a one-year maturity, which completes the Fannie Mae Benchmark Bill yield curve. To date, the company has issued more than $315 billion in short-term Benchmark Bills.

In addition, earlier this year, Fannie Mae introduced its Benchmark Automated Syndication System (BASS), a new proprietary web-based system that provides the first end-to-end syndication process. With this system, information flows directly from the dealer to Fannie Mae, ultimately providing the entire market with the results of the book building process. Howard noted the system gives international investors the ability to view deal information 24 hours a day, enabling them to make better investment decisions.

Fannie Mae is a shareholder-owned corporation chartered by the U.S. Congress, with shares traded on the New York Stock Exchange. As the largest non-bank financial services company in the world based on assets, it has $638 billion in assets and $701 billion in net Mortgage-Backed Securities outstanding.

More information about Fannie Mae can be found on the Internet at http://www.fanniemae.com. Fannie Mae is recognized by Fortune Magazine as the fourth most admired diversified financial company in the world.

Benchmark Bills, Benchmark Bonds, and Benchmark Securities are service marks and Benchmark Notes is a registered mark of Fannie Mae. Unauthorized use of these marks is prohibited.